Chapter X compliance and disclosed end use barred Rule 196 duty demand when licence was granted on that basis.

Exemption notifications under Chapter X remained conditional on compliance with the prescribed procedure, but where an assessee disclosed carbon black feedstock in its L-6 licence application under Rule 192 and the department granted the licence on that basis, raw naphtha could not later be treated as having been used contrary to the stated purpose. On those facts, the precondition for invoking Rule 196 was not met, so the duty demand was not sustainable and the penalty also could not stand.

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Issues: Whether demand of duty under Rule 196 of the Central Excise Rules, 1944 could be sustained when the assessee's application for an L-6 licence under Rule 192 of the Central Excise Rules, 1944 had disclosed carbon black feedstock as one of the final products to be manufactured.

Analysis: The exemption notifications operated subject to compliance with Chapter X procedure, and the assessee had applied for and obtained L-6 licence under Rule 192 after stating carbon black feedstock among the products proposed to be manufactured from raw naphtha. Once the department granted the licence on that footing and allowed the concessional procedure to continue, the raw naphtha could not be treated as not having been used for the purpose and in the manner stated in the application. On that premise, the precondition for invoking Rule 196 was not satisfied.

Conclusion: The demand of duty under Rule 196 was not valid, and the penalty also could not stand.

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